Wealth managers offer advice for dealing with the 'boomerang generation'

As the cost of living continues to rise, more parents are getting struck by the “boomerang generation.” 

And that means more of them will be hitting up their financial advisors for guidance.

The term boomerang generation is often to describe young adults who move back into their parents’ home after college or even after a few additional years on their own. Amy Drinkard, partner at Steadmont Advisors, highlights the challenges and encourages parents to treat it as a temporary stepping stone rather than an indefinite arrangement. In her view, having an “open conversation” upfront is key, as is setting expectations around household responsibilities, financial contributions, and a general timeline for when the child hopes to move out.

“Charging rent can work well, even if parents choose to set the money aside to give back later as a down payment fund. Independence and boundaries are important, so while it is still their child, the parent is no longer raising a teenager. The goal should be to help them progress toward stability rather than creating dependence,” Drinkard said.

Derek Wittojohann, chief operating officer at Premier Path Wealth Partners, is also a big believer in keeping communication lines open, saying “uncommunicated expectations are premeditated resentments.”

He recommends clients assign expectations and a timeline to their support. He’s also found great success in clients supporting their children with resources that directly tie into their progress and development. For example, instead of clients giving outright cash gifts, he recommends they consider paying for a career coach and job resources, or paying for continuing education that will help their children take the next step in their career.

Meanwhile, Allyson Mangine, wealth advisor at Amplius Wealth, believes that regardless of what agreement the parents and their kids arrive upon, it would be beneficial for them to come up with parameters and goals to work towards in order to keep up momentum. For example, she advocates the boomeranger apply to a baseline number of jobs per week or find part time work to help build up their savings or pay for expenses or loans.

To support or not support

Even if the adult children don’t move back home, many parents keep supporting them monetarily. The question then arises as to how much support they should maintain. Is there a magic dollar amount or percentage of net worth that is appropriate? And if so, how does one arrive at that number?

With nearly all financial situations in life, the answer is planning, according to Shawn Jiles, director at Cyndeo Wealth Partners.

“If parents want to continue to provide financial support to adult children, it is wise to include this in their own financial plan.  It can be difficult to arrive at a figure or percentage on your own, but a financial plan can help remove emotions and/or social pressures when coming to a decision whether it can and/or should be done,” Jiles said.

Along similar lines, Drinkard often reminds clients that protecting their own retirement security has to come first, because their children cannot borrow for your retirement the way they can for other goals.

“There is no one-size-fits-all percentage or dollar amount to give. I walk families through their full financial picture, and together we determine how much support can be offered without disrupting their long-term plan. Sometimes that means setting a clear monthly number, other times it means limiting support to specific needs like health insurance or rent,” Drinkard said.

Put simply, the structure matters more than the size of the gift.

Wittojohann has also seen cases where clients may be able to provide their children with financial support during their own lifetime, but not beyond that. The risk is that, left uncommunicated, their children often calibrate their own lifestyle and expectations, assuming the support will always be there, only to have the rug pulled from them when they find out the money will not be there in perpetuity.

“This often leaves them unprepared from a financial literacy perspective, which could have been avoided with ongoing communication, transparency, and development resources,” Wittjohann said.

To save or not to save in advance

Given the elevated likelihood that adult children will need to depend on their parents’ generosity well after college, parents might want to consider saving for the possibility ahead of time. This creates yet another challenge for wealth managers.

Rather than earmarking money in a “support fund,” Drinkard suggests clients focus on building strong emergency reserves, paying down debt, and maintaining healthy savings habits. That way, if they do choose to step in later, they can do so without derailing their own goals.

On the other hand, Cyndeo’s Jiles, has no issue with creating a separate support fund, as long as it includes some “soft rules” around when and for what to use these funds. One idea Jiles offers is to have a matching reward system for the adult children. For example, the fund could match the down payment on the adult children’s first home, or match their W2 for the first several years after graduating college. 

Finally, Amplius’ Mangine does not think it is necessary for parents to start separate accounts for post college costs. However, she believes this situation does illustrate the importance of saving outside of one’s 401(k) or other retirement accounts in order to retain flexibility ahead of retirement.

“Saving to a non-retirement brokerage account, gives you the flexibility to have savings you can use more tax efficiently ahead of your retirement. Although there may be capital gains taxes, and taxes related to investment income, it allows you the ability to pull from that account without having to pay ordinary income taxes on the entire distribution, whether that be for family support or a large purchase down the line,” Mangine said.